Toyota motor corporations new challenges

INTRODUCTION

Different businesses around the world are facing new challenges as they survive or thrive in our constantly changing world. They are subjected to different factors that can make or break their endeavor. This paper aims to identify those factors that act within or outside the company. Toyota Motor Philippines Corporation (TMP) is an international company based in the Philippines and a subsidiary of Toyota Motor Corporation (TMC). TMP can illustrate what a big company experiences in the Philippines, and how it responds to different problems that gets in its way.

TOYOTA MOTOR PHILIPPINES CORPORATION

Toyota Motor Corporation is the parent company of Toyota Motor Philippines Corporation. It was founded on August 28, 1937 in Japan. It operates 75 manufacturing companies across 28 countries globally, and markets vehicles in more than 170 countries (linkedin.com, 2009). It currently has 320,808 employees around the world, including their affiliated companies (toyota.co.jp, 2009).

Toyota Motor Philippines Corporation (TMP) specializes in manufacturing and marketing Toyota products and services. The company produces the Innova and Vios, two of the best selling cars in the country (linkedin.com, 2009). Furthermore, TMP also markets Fortuner, Avanza, Corolla, Camry, RAV 4, Hilux, and Yaris, together with the Lexus brand and Prius (linkedin.com, 2009). Table 2 shows the key statistics of TMP.

TMP was founded just two years after the momentous EDSA Revolution which left the country’s economy reeling (businessmirror.com.ph). TMP’s chairman and founder is Dr. George S. K. (for Siao Kian) Ty. He is Filipino-Chinese and ranked as tenth richest person in the country, according to Forbes survey (forbes.com). He is also the chairman of Toyota Autoparts and the founder of Metropolitan Bank & Trust Company. His son, Alfred Ty, is the vice chairman of TMP.

Internal Influences

There are internal influences that affect or impact the company. These are the employees, management, and corporate culture within the organization.

The Toyota Way

Culture is one of the major influences in the success of Toyota. The Toyota Way, Toyota’s management philosophy, contains the fourteen principles that the company upholds in all its operations. It “focuses on adding value to customers and society” (Hoseus & Liker, 2008).

The long-term philosophy of the Toyota Way is “Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals” (Liker 2004). The second to the eighth principles emphasizes on the “Lean Processes: The Right Process Will Produce the Right Results” (Liker 2004). “Develop and Challenge Your People and Partners through Long-term Relationships” (Liker 2004) contains the ninth to the eleventh principles. The twelfth to the fourteenth principles are about “Problem Solving and Continuous Improvement Drive Organizational Learning” (Liker 2004). Please see Appendix A.

The fourteen principles of the Toyota Way are the beliefs and values in Toyota (Hoseus & Liker 2008). Jeffrey Liker (2004) summarized the management principles of Toyota in a 4P model (see Figure 1).

Liker (2004) describes Toyota’s culture in a 4P model. “Philosophy is about Toyota’s purpose and why they exist; process is about what Toyota believes leads to operational excellence – constantly eliminating waste; people are what drive the company forward and culture is what teaches the people how to act, think and feel to work together toward a common goal; problem solving is the way Toyota people focus their efforts to continually improve” (Liker 2004).

TMP incorporates the Toyota Way, which is “the core system that marks TOYOTA as a unique business entity and unifies all Toyota affiliates around the world, regardless of location, ownership structure, specific operation or local culture” (toyota.com.ph) in all its activities in the organization. Continuous improvement and respect for people are the pillars of the Toyota Way (toyota.com.ph).

The Toyota Way is reflected in TMP’s Missions and Vision. TMP’s Missions are “To dominate our markets through dynamic selling and timely delivery of attractive products, with excellent customer service and continuous product improvement; to produce vehicles and components of outstanding quality, using advanced technology, continuously improving methods and environment-friendly processes while maintaining safe working conditions; to sustain Company profitability, stability, productivity and growth by efficiently engaging in effective financial and resource management for the collective gain of the Toyota Family and the society we serve; to sustain Team Members’ morale and productivity by developing their full potential and total well-being, and by establishing mutual trust, mutual responsibility, and harmony through open communication.” (toyota.com.ph) Toyota’s Vision is “To be the No.1 AUTOMOTIVE COMPANY where GREAT PEOPLE work as a TEAM to provide the BEST products and service to our CUSTOMERS.” (toyota.com.ph)

TMP aims to dominate the markets by meeting the demands of the market for quality products and services using advanced technology and eco-friendly means through its competitive workforce. TMP’s culture makes sure that each and everyone in the organization knows why the company exists, what should be done to achieve the company’s missions and vision, and make people the “key” factor or instrument in reaching the company’s goals. TMP knows that the company’s strength lies in its people, and that its greatest assets are its Team Members (toyota.com.ph). Each employee is treated as a “work in progress”. The company realizes that to maintain the quality of the products and its share of the market, it has to keep its team adept. TMP exposes its team members to other training programs, personality development courses and livelihood programs “to help Team Members reach their full potential” (toyota.com.ph).

Continuous improvement is a popular Japanese strategy (1000ventures.com). It is also known as “kaizen” which means improvement in Japanese. This strategy “calls for never-ending efforts for improvement involving everyone in the organization – managers and workers alike” (1000ventures.com).

One of the results of this strategy is TMC’s process in building cars which is the standard in all its production companies. This process is called Toyota Production System. TMP claims that it is “the most efficient manufacturing system in the automotive industry” because of the “(1) the way it turns production into a smoothly-flowing process, and (2) the way it liberates human creativity” (toyota.com.ph). It “encourages personal initiative and rewards the individual with job satisfaction” (toyota.com.ph). TPS is based on the Just-in-time (JIT) philosophy. With JIT, TMP only produces what is needed, when they are needed, and only the quantity needed. “JIT results in higher productivity, lean inventories and operating savings.” (toyota.com.ph)

Organizational Structure

Figure 1, shown above, illustrates the top part of the hierarchy in TMP. TMP adapted the organizational structure from TMC. In TMC as of 2006, its Executive Body is “composed of a total 25 Directors that include the Chairman, Vice Chairman, President, 8 Executive Vice Presidents, 12 Senior Managing Directors, an Honorary Chairman, and Senior Advisor. None of these are independent directors. There are four committees that feed into the Board, including the Labor Management Council, the Stock Option Committee, the CSR & Environmental Affairs Division and the Toyota Environment Committee.” (oneworldtrust.org)

TMP is owned by three organizations. In August 3, 1988 the shareholder structure of TMP consists of Toyota Motor Corporation with 34% of shares, Mitsui & Co. Ltd. with 15% of shares, and Metrobank (under Dr. George S. K. Ty) which has 51% of shares (filipiniana.net). By adapting TMC’s organizational structure, TMP can pay attention to the different aspects of the company that all subsidiaries of Toyota are expected to perform.

External Environment

The external environment consists of the factors that are beyond the company’s control and are dependent on people and forces outside the company. The different external environment includes: political, economic, socio-cultural, technological, legal, competitive, financial, international business entry, knowledge management, and ecological environments.

The Political and Economic Environments of the Philippines

The political environment deals with the country’s government, government agencies, all laws, and the different lobbying groups that influence or restrict individuals or organizations in the society (allbusiness.com). “There are at least four major dimensions of a host country’s political environment of concern to the international firm: political system and ideology, the role of government in the economy, political instability, and the country’s international political relationships” (booksites.net).

The Philippines is a democratic country which follows the constitutional republic form of government with the president which acts as both the head of the state and the head of government. It has three coequal branches: executive (law-enforcing body), legislative (law-making body), and judiciary (law-interpreting) (Philippine-travel-guide.com).

In the Philippines, the government grants businesses with economic freedom to a certain extent (blurtit.com). The government can intervene when the need arises. In the late 1960s, the Philippines initiated efforts to develop national mobile industries through making the country a local parts manufacturer of auto parts (McVey, 1992). The program was not successful however and the participants; Volkswagen, Toyota, Ford, Chrysler, and General Motors, lost money during that program (rfc.guevent.ph ).

The Philippines has a mixed economy. “Mixed Economy can be defined as a form of organization where the elements of both capitalist economy and socialist economy are found” (economywatch.com). For example, there are companies in the country that are entirely privately-owned, like TMP, and there are also some that are government owned. Private economic freedom is present but the government retains some of its power through laws and policies (economywatch.com).

TMP is involved in importing goods from other manufacturing firms and exporting the products produced in the Philippines to other countries. Better understanding of the economic environment is vital to the entire company. “The economic environment consists of all factors-such as salary levels, credit trends, and pricing patterns- that affect consumer spending habits and purchasing power” (allbusiness.com).

The Philippines is a member of three of the main trading blocs of the world; APEC, Cairns Group, and G20. “APEC (Asia-Pacific Economic Cooperation) is a loose grouping who has pledged to facilitate free trade” (news.bbc.co.uk). The Cairns Group of agricultural exporting nations focuses on free trade of agricultural products (news.bbc.co.uk). The G20 (Group of 20) is a group of countries which aims to ensure they have a place in the Asia and Europe markets. Because of the current global financial crisis, the member countries, through their leaders, are coordinating with one another to sustain their countries’ economies against the onslaught of the crisis.

The company imports Corolla from Thailand. “TMP is selling in other countries like Argentina, other ASEAN countries, South America and South Africa” (tsikot.com).

The Socio-cultural Environment of the Philippines

“The cultural environment includes institutions and other forces that affect the basic values, behaviors, and preferences of the society-all of which have an effect on consumer marketing decisions. The demographic environment includes the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistical information.” (allbusiness.com)

According to the National Statistics Office, as of 2007, the Philippines has a total population of 88,574,614 Filipinos. Table 2 shows the total population in the Philippines in 1995, 2000, and 2007; and the population per region in the country.

The Technological Environment of the Philippines

“The technological environment consists of those forces that affect the technology and which can create new products, new markets, and new marketing opportunities.” (allbusiness.com)

Based on the yearend report of the Chamber of Automotive Manufacturers of Philippines, Inc. (CAMPI), Toyota is the market leader in the Philippines with a 36.9-percent market share in January to December 2008 within which it has sold 45,915 units. Toyota’s technological advancements contributed to TMP’s leading status in the Philippines.

Toyota companies give top priority to car safety. Toyota aims to make a “safe car” which can protect occupants in the event of a car accident and as much as possible, prevent accidents from occurring (toyota.co.jp). On September 6 of 2009, Toyota recalled the Toyota cars, including Lexus vehicles and the Prius due to the floor mat defect which can cause a crash. It is yet the largest recall made by Toyota (blogs.houstonpress.com). The company issued the recall to prevent accidents from occurring and to continue delivering quality products and services to its consumers.

Welding robotWith the advent of new technology, robots were designed and invented. TMC and its subsidiaries use industrial robots in their production line. The robots minimize errors and are accurate, which the companies are aiming for. The image above shows welding robots in TMC’s production line (image copied from toyota.co.jp).

The Legal Environment of the Philippines

The legal environment comprises the laws, policies, and legal procedures that can affect businesses. JISC infoNet describes Legal environment as “current and impending legislation affecting the role” (jiscinfonet.ac.uk).

The Philippines has a mixture of civil law and common law legal systems. The civil law is a “body of law derived and evolved directly from Roman Law, the primary feature of which is that laws are struck in writing; codified, and not determined, as is common law, by the opinions of judges based on historic norms.” (duhaime.org) TMP adheres to the laws in the Philippines which both has a judicial court and the legislative body; the congress and senate.

In 2005, Paice LLC, a small Florida-based hybrid car technology company, won a patent infringement case against Toyota (hybridcars.com). The company has now presented another case to the International Trade Commission which has the power to ban all Toyota hybrids from the United States (hybridcars.com).

In the Philippines, TMP is being sued because of illegally dismissing its 233 employees. TMPCWA (Toyota Motor Philippines Corporation Workers Association) is the organization of TMP employees whose goal is to protect and bring justice for the abused employees through legal proceedings.

The Competitive Environment of the Philippines

The Porter’s Five Competitive Forces Model (Porter, 2008), shown above, illustrates the factors that affect the company’s performance and guides the companies on what strategies to take next. It aims “to understand the underpinnings of competition and the root causes of profitability” (Porter, 2008). The impacts of the five competitive forces on TMP are explained in the following paragraphs.

The suppliers of TMP have weak bargaining power. It is due to the fact that most of TMP suppliers are affiliate or subsidiaries of the parent company, TMC.

The buyers of Toyota products have strong bargaining power. There are other companies in the Philippines who offer the same products which have almost the same features. Toyota products are also very expensive for ordinary Filipinos.

New entrants to the industry are big threats to the company. The Philippine government is trying to attract as many investors in the company as possible. With the support of the government, the new car manufacturers will be able to establish themselves in the country and penetrate the market.

Substitutes for Toyota products have weak power over the company. There are few products that can replace Toyota’s products, which are mainly cars. The other substitutes in the market are less comfortable, examples are motorcycles and trucks.

Rivalry among existing firms has strong impact on TMP. The car manufacturing companies in the Philippines are still few despite the efforts of the government. These companies operate in the same country and cater to the same market as TMP. Most of these companies are also subsidiaries of large multinational companies similar to TMC. Because they have almost the same conditions and capacity as TMP, competition is tight in the Philippine market.

The Financial Environment

On the onset of the global financial crisis, companies around the world started losing their investments and experienced decline in their sales. TMP has continued to experience the decline in their consumer demand and may make adjustments in their vehicle pricing (tsikot.com). According to TMP vice president for corporate affairs Rommel T. Gutierrez, they are considering a re-launch for Toyota cars; “there may be some minor changes” (Osorio, 2009).

TMP is an international company. It imports Toyota models from other countries like Thailand for the Corolla model, and exports Innova and Vios models to countries like Argentina, other ASEAN countries, South America and South Africa (Osorio, 2009). In this activity, TMP needs to monitor the currency exchange rates and the value of Philippine Peso.

The International Business Entry

As companies continued to grow, they expand to other countries and thus started globalization. Globalization “encompasses a range of social, political, and economic changes” (globalpolicy.org). It creates markets and wealth but with it comes widespread suffering and poverty.

TMC is one of the multinational companies which takes advantage of globalization. Globalization has created and opened markets for Toyota products. TMC was able to build manufacturing plants in different countries; one of these is TMP.

The Knowledge Management of TMP

“A learning organization focuses on enhancing its systems (including its people) to continually increase the organization’s capacity for performance” (managementhelp.org). TMP is a learning organization since its systems and its people are constantly undergoing improvements to deliver the best performance.

“As the Team Member acquires essential skills for his work, he is also exposed to other training programs that would make him a highly-skilled, competent worker, and a well-developed individual. Personality development courses and livelihood seminars are offered to help Team Members reach their full potential” (toyota.com.ph).

TMP has also invested in computer-based information systems. TMP hires qualified programmers, network administrators and systems analysts to oversee all computerization and overall computerization and systems management (toyota.com.ph).

Theme: Ecological Factors

The natural environment involves all the natural resources, such as raw materials or energy sources, needed by or affected by marketers and marketing activities (allbusiness.com). It is related to ecology which is “the study of the relationship of organisms and the environment” (Encarta Dictionary 2008).

The Philippines is facing many ecological problems. Some are even made worse by the effects of the typhoons frequently crossing the country and the lack of proper implementation of rules and regulations meant to preserve nature. The most recent is attack that the country has to endure is Typhoon “Ondoy” which has an international name Ketsana. Just like other countries in the world, among the Philippines’ problems are biodiversity, deforestation, pollution, global warming, and energy scarcity.

The natural resources of the Philippines are being neglected. Because of the rapidly growing population, forestlands and grasslands are being converted for urban use without consideration for the consequences. Others were converted to agricultural lands to respond to the increased demand for agricultural products. A result of the deforestation of the Philippines is the threat to the country’s biodiversity. Natural habitats of animals are destroyed and rare animals are going to extinction. Soil erosions and landslides are frequent According to World Bank, the country is restricted by inconsistent laws, inadequate regulations, over-lapping institutional mandates, weak enforcement and funding shortages (web.worldbank.org).

The air and water pollution in the country especially in the major urban areas are worsening. The “air pollution levels in Metro Manila and other cities exceed national air quality standards and impose a serious economic burden on society” (web.worldbank.org). There are some large industries in the country and other smoke belchers like cars that are worsening the air conditions. The Philippine Clean Air Act of 1999 was formulated to protect and uphold a balanced and healthy ecology for the people.

“Fragmented water management, weak enforcement of regulations, and poor planning” (web.worldbank.org) are the factors that contribute to the slow and inadequate responses to water pollution. The supply for clean water is not enough for the demand because some industrial and household wastes are released into bodies of water without proper treatment.

According to the Department of Energy, the Philippines is facing a power shortage that may last beyond 2010. The Visayas region has already experienced blackouts the previous year (2008) and might occur again if left unresolved (gmanews.tv).

Our planet is undergoing climate change. The planet is warming up due to the harmful gases emitted into the air which causes the greenhouse effect. Large companies and the cars are said to be the largest polluters which contributed to climate change.

TMC has recognized these threats to the environment and established protocols in all its business activities which are followed by the entire company and all its subsidiaries all over the world. These procedures are in accordance with TMC’s guiding principles. The complete “Guiding Principles at Toyota” and “Five Main Principles of Toyoda” are listed in Appendix B.

TMP is committed in preserving the environment. The company “engages in Clean & Green Project activities with schools as partners (toyota.com.ph).” TMP focuses on minimizing energy and resource consumption to reduce or eliminate the discharge of unwanted substances to the environment. TMP also observes proper waste segregation and disposal (toyota.com.ph).”

Recognizing that technology has significant effects on the environment, Toyota (TMC and its subsidiaries) “uses technology that minimizes environmental impact through engines that are fuel-efficient and produce lower emissions” (toyota.com.ph). The Toyota hybrid cars are the company’s solution. As of 2009, the “number-one selling hybrid car is the Toyota Prius” (hybridcars.com). Furthermore, “Toyota is currently leading in developing tomorrow’s fuel cell vehicles” (toyota.com.ph).

In addition, TMP provides service upgrades for the damaged cars caused by the flood when Typhoon Ketsana hit. Discounts will also be given in consideration of the unfortunate experience of its customers (Toyota.com.ph).

TMC has extended its organizational structure to accommodate the company’s advocacy for harmonious environment. The company’s environmental organization framework is illustrated in Figure 3. As seen in the figure, the leaders and responsibilities of each committee are indicated as well as the years the committees were established, as of August 2008. All these committees “collaborate with all relevant divisions to promote company-wide action” (toyota.co.jp).

As early as 1990, before the call for a greener environment became more insistent, the guiding principles of Toyota have already been established. It even came before the Philippine Clean Air Act of 1999, a law which aims to protect the country and its citizens against polluters.

TMC has been proactive as a company. It has foreseen the need for sustainable development. TMP reflects TMC’s attitude on environment preservation. The company has already been commended for its efforts. TMP is the “first automotive company in the Philippines to be awarded the ISO14001 certification for environment management.

Recommendations

The Toyota Prius is the number one selling hybrid car in the market but this doesn’t mean Toyota can stop there. Many players in the market try other sources of power for their vehicles. The company can try using wind and solar energy for their cars.

Most TMP projects are only focused in Luzon. TMP must consider extending their environmental initiatives to include the other regions of the country like the Visayas and Mindanao. Not only does this help the country and Filipinos but it also increases brand awareness for Toyota products.

As mentioned, TMP is already ISO certified in environment management. TMP can also aim for ISO 9001:2008 for “quality management systems for design and development, production, and installation and service of automotive-related products” (iso.org).

References

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Appendix A

Fourteen Principles of the Toyota Way

Long-Term Philosophy

Principle 1. Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.

Lean Processes: The Right Process Will Produce the Right Results

Principle 2. Create a continuous process “flow” to bring problems to the surface.

Principle 3. Use “pull” systems to avoid overproduction.

Principle 4. Level out the workload (Heijunka) – like the Tortoise, not the Hare.

Principle 5. Build a culture of stopping to fix problems, to get quality right the first time.

Principle 6. Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.

Principle 7. Use visual controls so no problems are hidden.

Principle 8. Use only reliable, thoroughly tested technology that serves your people and processes.

Develop and Challenge Your People and Partners through Long-term Relationships

Principle 9. Grow leaders who thoroughly understand the work, live the philosophy and teach it to others.

Principle 10. Develop exceptional people and teams who follow your company’s philosophy.

Principle 11. Respect your suppliers by challenging them and helping them improve.

Problem Solving and Continuous Improvement Drive Organizational Learning

Principle 12. Go and See for Yourself to Thoroughly Understand the Situation. (Genchi Genbutsu)

Principle 13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly.

Principle 14. Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen).

Source: Jeffrey Liker, The Toyota Way, New York: McGraw-Hill, 2004.

Appendix B

Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world.

Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities.

Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities.

Create and develop advanced technologies and provide outstanding products and services that fulfill the needs of customers worldwide.

Foster a corporate culture that enhances individual creativity and teamwork value, while honoring mutual trust and respect between labor and management.

Pursue growth in harmony with the global community through innovative management.

Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships.

Established in 1990, revised in 1997. (Translation from original Japanese.)

http://www2.toyota.co.jp/share/spacer.gif

Guiding Principles at Toyota

Always be faithful to your duties,

thereby contributing to the Company and to the overall good.

Always be studious and creative, striving to stay ahead of the times.

Always be practical and avoid frivolousness.

Always strive to build a homelike atmosphere at work that is warm and friendly.

Always have respect for God, and remember to be grateful at all times.